The past six months have proved difficult for the UK, particularly in 2Q12 when the economy contracted by 0.7%. The success of the London 2012 Olympics provided a welcome distraction in 3Q12 and may even help to keep the economy out of recession for the fourth consecutive quarter, before the anticipated fall in 4Q12. One obvious headwind facing the UK economy remains the crisis in the eurozone, and there seems to be no sign of a solution to the crisis currently. This is likely to prolong the uncertainty in the eurozone and depress UK exports, as half of UK export trade is to Europe, albeit mainly to core northern economies. Furthermore, GDP data are inconsistent with the UK labour market, which has been holding up surprisingly well with the unemployment rate standing at 8% (ILO, June 2012). This is the lowest rate since July 2011, with the decline partly due to jobs created by the London Olympics as well as an increase in part-time jobs and selfemployment. The headline figures contrast with the gloomy outlook for the UK economy painted by the Bank of England and some City economists who expect the economy to shrink this year. For 2012 as a whole, we now expect GDP to fall by 0.5% and for moderate growth in 2013 of 0.8%.
Source : UBS AG